Supplier Opportunism Amid the COVID-19 Pandemic

The COVID-19 pandemic has undoubtedly challenged our healthcare system in many ways.

 

One challenge being faced by our health systems’ supply chains is the unscrupulous and opportunistic behavior by some suppliers. This article is a discussion of some of the supplier behaviors we have observed thus far and how to mitigate risks associated with these behaviors. As you might expect, we will discuss illegitimate suppliers that have seemingly sprung up overnight, but we will also touch on some examples of uncharacteristic activities among legitimate suppliers. Crisis brings out the best in many but brings out the worst in others. 

Exorbitant Price Increases

The rapid influx of patients and nature of Coronavirus caused a strain on hospital inventories and supply chains for certain products, equipment and services. As we are all familiar, treatment and preparedness activities among US hospitals resulted in a spike in demand for Personal Protective Equipment (PPE) such as gloves, gowns and face masks. However, there are other examples of demand spikes within lesser known categories.

Simple supply-demand economics suggests that the increased demand should result in an increase in price, however, there is a fine line between reasonable increases and exorbitant price increases. Also, in supply chain, we should consider if paying a higher price truly makes sense in light of the underlying market dynamics.

For example, one East Coast health system had an emergent need to staff security patrol officers at several of their locations as a preparedness measure for an influx of patients and visitors resulting from the pandemic. They reached out to their security supplier who quoted a rate which was almost double the current market in their location on an hourly basis.

Initially, one may think this was a reasonable response due to the emergent nature of the need. But consider the current labor market dynamics for security officers. As retail, office and restaurant locations close, security patrol suppliers likely have an excess of security officers on staff seeking new assignments. It would make more sense for security suppliers to reallocate those patrol officers at a reasonable market cost to provide security services for the hospitals in need.

Tip – For short-term staffing needs resulting from COVID-19, we suggest utilizing rapid benchmarking resources or simply comparing to past or contracted pricing. This is especially important in situations in which the supplier has a great deal of leverage such as emergent sourcing situations.

Similar supplier behavior has also been observed among equipment manufacturers and resellers. For example, one well-known manufacturer of ventilators has increased prices by a minimum of 15% across the board and is no longer accepting trade-ins of used equipment.

Another supplier of patient monitoring equipment is now selling all equipment at list price. Selling equipment at list price is almost unheard of among medical equipment suppliers who typically inflate list prices and sell equipment consistently at “deep discounts” off of list.

Tip – Keep track of supplier costs to purchase equipment at this time then use that information as leverage for future purchases. Consider which equipment manufacturers have been partners and which have been opportunists.

Questionable Suppliers & Scams

In recent weeks, we have seen many new suppliers that have sprung up seemingly from nowhere. Much of this activity is driven by an entrepreneurial spirit by some individuals, however, this means the supply chain has a responsibility to limit exposure caused by ordering from previously unknown suppliers.

As a result, we recommend putting into place specific measures and guidelines to ensure your hospital is only dealing with legitimate suppliers.

Keep a look out for the following when determining if a supplier is legitimate:

  1. They do not exist in your system from previous orders.
  2. They are requesting full or significant payment upfront.
  3. They are unable to validate the existence of the inventory.
  4. They are unable to guarantee delivery dates.
  5. They cannot be found online.
  6. They are unable to provide specific references from other hospitals.
  7. They are offering deals that seem “too good to be true”.

Tip – Prior to placing an order, especially from a new supplier, we recommend confirming the physical inventory exists via live video such as Facetime. This may not eliminate all risk, but it will eliminate most illegitimate suppliers.

Keep in mind that not all non-traditional suppliers are necessarily questionable. For example, many large suppliers of textiles and apparel have shifted their manufacturing infrastructure and resources to produce masks and gowns.

Tip – The Association for Healthcare Resources & Materials Management (AHRMM) has compiled a dynamic list of vetted suppliers for COVID-19 resources, PPE and other critical supplies. This information can be found at: www.ahrmm.org/ahrmm-covid-19

Closing Statements

Our hospital supply chains are bearing the heavy burden of protecting our hospitals from opportunistic suppliers and scams. As supply chain professionals, we may not be on the front lines of patient care, but we are fighting to minimize risks and exposures of a different kind from impacting our health systems. It is human nature to make poor decisions in times of panic. Therefore, it is in our best interest to remain calm, thoughtful and diligent in our dealings with suppliers amid the COVID-19 pandemic.

Author:

Eric Slimp

Purchased Services Director

Eric Slimp joined TractManager’s MD Buyline division in 2013, left in October 2017, and rejoined the company in June 2018.

 

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